Correlation Between Zip Co and Wesfarmers
Can any of the company-specific risk be diversified away by investing in both Zip Co and Wesfarmers at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Zip Co and Wesfarmers into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Zip Co Limited and Wesfarmers, you can compare the effects of market volatilities on Zip Co and Wesfarmers and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Zip Co with a short position of Wesfarmers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Zip Co and Wesfarmers.
Diversification Opportunities for Zip Co and Wesfarmers
-0.32 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Zip and Wesfarmers is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Zip Co Limited and Wesfarmers in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wesfarmers and Zip Co is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Zip Co Limited are associated (or correlated) with Wesfarmers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wesfarmers has no effect on the direction of Zip Co i.e., Zip Co and Wesfarmers go up and down completely randomly.
Pair Corralation between Zip Co and Wesfarmers
Assuming the 90 days trading horizon Zip Co Limited is expected to generate 4.4 times more return on investment than Wesfarmers. However, Zip Co is 4.4 times more volatile than Wesfarmers. It trades about 0.17 of its potential returns per unit of risk. Wesfarmers is currently generating about 0.1 per unit of risk. If you would invest 32.00 in Zip Co Limited on August 29, 2024 and sell it today you would earn a total of 294.00 from holding Zip Co Limited or generate 918.75% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Zip Co Limited vs. Wesfarmers
Performance |
| Timeline |
| Zip Co Limited |
| Wesfarmers |
Zip Co and Wesfarmers Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Zip Co and Wesfarmers
The main advantage of trading using opposite Zip Co and Wesfarmers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zip Co position performs unexpectedly, Wesfarmers can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Wesfarmers will offset losses from the drop in Wesfarmers' long position.| Zip Co vs. Hotel Property Investments | Zip Co vs. Bailador Technology Invest | Zip Co vs. Ras Technology Holdings | Zip Co vs. Diversified United Investment |
| Wesfarmers vs. Mirrabooka Investments | Wesfarmers vs. Garda Diversified Ppty | Wesfarmers vs. Regal Investment | Wesfarmers vs. Diversified United Investment |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.
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